Shared Supplier Capacity as a Barrier to Ethical Sourcing

34 Pages Posted: 9 Jan 2023

See all articles by Jacob Chestnut

Jacob Chestnut

Cornell SC Johnson College of Business

Ravi Anupindi

University of Michigan, Stephen M. Ross School of Business

Date Written: May 20, 2021

Abstract

Motivated by conversations with practitioners, this experimental paper considers (1) the production decisions (e.g., late stage Rejection, production by In-House Capacity, and production by Unauthorized Capacity) of a capacity constrained Supplier who faces a portfolio of different Buyer firms and (2) the effectiveness of Buyers’ potential strategic responses to the Supplier’s choices. We consider both the relevant operational (e.g., Wholesale Price and Order Volume) and non-operational (e.g., the generosity of Buyer’s Retail Price relative to the Wholesale Price offered) information used by the Supplier when making their choice. Additionally, using both a between, and within, subject design we show that Supplier's do consider Buyers' Retail Price when making their production decisions, and identify the key psychological drivers of this behavior. Finally, we consider how a savvy Buyer can use this information to decrease the likelihood that their order is produced using unauthorized capacity.

Keywords: sustainable sourcing, outsourcing, procurement

Suggested Citation

Chestnut, Jacob and Anupindi, Ravi, Shared Supplier Capacity as a Barrier to Ethical Sourcing (May 20, 2021). Available at SSRN: https://ssrn.com/abstract=4319539 or http://dx.doi.org/10.2139/ssrn.4319539

Jacob Chestnut (Contact Author)

Cornell SC Johnson College of Business ( email )

Ithaca, NY 14850
United States

Ravi Anupindi

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
734.615.8621 (Phone)

HOME PAGE: http://michiganross.umich.edu/faculty-research/faculty/ravi-anupindi

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